The objectives of this project are: (1) to study the possible role of oval cells as stem cells for hepatocytes and (2) to examine if these cells are the targets for carcinogens during chemical hepatocarcinogenesis. Administration of a small amount of 2- acetylaminofluorene (AAF) for two weeks, combined with partial hepatectomy, prevented the proliferation of hepatocytes, especially in the caudate lobe, whereas oval cells were resistant to the cytotoxic and cytostatic effect of AAF. At day 7, after partial hepatectomy, these cells occupied one-half of the area of the liver acinus. At day 9 small basophilic cells with vesicular round nuclei appeared on the area of oval cells. Only oval cells and islands of basophilic cells had mRNA for albumin and alpha- fetoprotein. Oval cells were gamma-glutamyltranspeptidase (GGT) positive and glucose-6-phosphatase negative and did not have surface receptor of asialoglycoprotein. The preneoplastic lesions produced by the Solt-Farber protocol included basophilic periportal "nodules" that were similar to those obtained without initiation; positive for albumin, alpha-fetoprotein and glutathione-S-transferase P and negative for glucose-6- phosphatase and asialoglycoprotein receptor. However, some of the "nodules" in initiated livers were positive for GGT. These findings suggest that basophilic GGT positive "nodules" (enzyme altered foci) and GGT negative "nodules" (regenerating hepatic nodules) are derived from oval cells. C-myc oncogene was expressed in oval cells and in basophilic cells. TGF-beta induced differentiation of rat liver epithelial cells in vitro towards an adult hepatocyte phenotype, indicating a possible role of TGF- beta in the maturation of hepatocytes.